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Novartis order may force pharma MNCs to change
-The Economic Times

Medicines

Foreign pharma companies could be forced to overhaul their strategy for the Indian market by striking more local deals and cutting sky-high drug prices after the Supreme Court slammed the door on Swiss giant Novartis' attempts to gain a patent for its blood cancer-busting drug Glivec. But the ruling, welcomed by activists campaigning for affordable drugs and local generic companies, threatened to reinforce a narrative that India was hostile to foreign investors.

The Supreme Court on Monday denied patent protection to Glivec, saying it is an example of "incremental innovation" under Section 3(d) of the Indian Patents Act and thus not liable for protection. The court said the company failed to satisfy criteria stipulated in the Act such as research data clarifying the increased "therapeutic efficacy" of the innovation.

The ruling ends Novartis' attempts to secure a patent for the drug and continues to keep the price of anti-blood cancer drugs low in the country. Patients would have otherwise been forced to pay 1.20 lakh for a month's dosage if the court case had gone in favour of Novartis. Generic variants of Glivec cost 8,000 per month.

Novartis shares crashed 6.8% on Monday before ending down 1.81% at 587.95. Novartis responded to the ruling by decrying India's patent protection laws, adding it would invest cautiously in India and R&D investment would not happen. "The atmosphere for IP in India is not good. We have been boxed in from all sides. Novartis is committed to India, but there won't be any investment in R&D," said Ranjit Shahani, chairman of Novartis IndiaBSE -1.13 %. The multinational pharma lobby, the Organisation of Pharmaceutical Producers (OPPI), also expressed disappointment at the Novartis verdict.

India will be isolated as far as the pharma industry is concerned, considering the fact that multinationals have been at the receiving end of some adverse court judgements in the recent past. Hyderabad-based firm Natco Pharma was granted a compulsory licence for Bayer's liver and kidney anti-cancer drug Nexavar over the German firm's objections.

Swiss firm Roche was stripped off its patent for Peginterferon in February by the Intellectual Property Appellate Board (IPAB), eight years after it was granted. But Commerce and Industry Minister Anand Sharma defended the ruling, asserting that India's patent laws were in line with global norms.

Celebrated lawyer Harish Salve, who represented generic maker Cipla in the Supreme Court, rubbished claims that the ruling could hit India's image. "The ruling strikes a balance between patents and affordability.

If MNCs consider India a bad country for evergreening, it is welcome," he told ET NOW. Moreover, patented drugs form a miniscule 1% of India's Rs 18,000 crore a year market, experts said. Multinationals make more money by selling generics or branded generics than by selling patented products. "We believe that the event (the Novartis ruling) will have a neutral impact on the industry dynamics," says Sarabjit Kour Nangra, vice-president research at Angel Broking. "With generics being a major proportion of the overall market, the growth of the Indian markets will not change because of the judgement."

But India could lose out on some new products, though experts say the uncertainty of the past few years did not prevent multinationals from introducing about 20 new patented drugs in the country. Many of these products have not been challenged at all. "It is poor posturing by multinational drugmakers," said DG Shah, secretary general of the Indian Pharmaceutical Association, (IPA), a lobby group of Indian drugmakers.

PARTNERING WITH INDIAN COS

Multinationals, some experts said, will have to revise their strategy of competing in India. They will have to partner with Indian companies for voluntary licensing and adopt differential pricing along the lines of US-based MSD (Merck) and the UK's GSK. Both multinationals are selling some of their products at prices significantly lower compared with Western markets.

"Multinationals cannot afford to ignore a market like India, so they will have to balance public policy and profitability," said Aliasgar Dholkawal, advocate and IP expert at Wadia Ghandy and Company. "We have seen companies adopt dual pricing, and enter into licensing agreements with local companies. So these might be the options for MNCs to adopt in the immediate future."

In the short term, investment could flow more into China, which has already stolen a march over India. "Billions of dollars worth of investments have moved to China and we hope this eco system in India improves," Shahani said at the press conference. But the ruling could scupper any incremental innovation that foreign companies may make and want to patent in India.

However, in its order, the Supreme court said the judgement should not be read as a blanket ban on incremental innovation for all chemicals and pharmaceutical products. Section 3(d) bars grant of patents for minor tweakings to an existing patent intended to extend the life of the patent, thereby keeping it out of the reach of other companies that want to produce it cheaply.

India was the first major country in the world to incorporate this clause in its patent laws. Countries such as the Philippines and Argentina have since followed suit. Some multinationals fear the Supreme Court order could set a precedent for other generic makers and embolden other countries into adopting similar laws against incremental innovation.

Justices Alam, who retires on April 18, 2013, and Ranjana Prakash Desai took into account parliamentary debates that said after amendments to the patent laws, local pharma companies had come to supply "30% of low-cost drugs in the world". The court also said Novartis had failed to explain why it could not abolish its programme of handing out free medicines under a charitable programme and instead bring down the drug price.

Section 3(d), the court noted, was tightened by the 2005 amendment to allow product patents in all cases except mere discovery of a new form of a known substance that does not result in enhancement of known efficacy. "What is 'efficacy'? Efficacy means 'the ability to produce a desired or intended result'. Hence, test of efficacy in the context of Section 3(d) would be different, depending upon the result the product under consideration is desired or intended to produce," the court said.

"In other words, the test of efficacy would depend upon the function, utility or purpose of the product under consideration. Therefore, in the case of a medicine that claims to cure a disease, the test of efficacy can only be 'therapeutic efficacy,'" it added. This may not be music to the ears of some foreign companies that have invested billions of dollars in research.

But, their policy will be dictated, experts say, by more pragmatic considerations than in the past when the mere whiff of a socialist sounding order or policy was enough to send them scurrying to the doors. "The era of (the 1970s) are over, when MNCs threatened to leave the country and packed off," said a top executive at a multinational.

"Today the world is much different and circumstances have changed. The developed world has slowed down and for Big Pharma, a country like India is still very important. They also have diversified their portfolios and mitigated their risks. So in spite of all this, the rewards are higher than the risks," he added.